Happy Holidays or Bah Humbug?

This quarter's Global Confidence Survey finds that the strength of the economy going into 2005 relies on trends in fuel costs, hiring, and the holiday shopping season.Joseph McCafferty, CFO MagazineDecember 1, 2004

When this quarter's CFO Global Confidence Survey was conducted, just before the November elections, respondents' optimism about the U.S. and global economies had dampened somewhat. Their jitters most likely reflected uncertainty about the election as well as concerns about hiring, fuel prices, and the upcoming holiday shopping season.

While 52 percent of U.S. finance executives are either confident or very optimistic about the outlook for the domestic economy in the next year, that figure marks a sharp downturn from last quarter, when 67 percent expressed optimism. A full 32 percent of CFOs have a negative view of the U.S. economy over the next year, up from just 14 percent last quarter. Weakness in the local economy returned to the top of the list of business concerns, followed by the difficulty of attracting and retaining employees, and lack of capital.

Since the survey was conducted before President Bush was reelected and the October jobs figures were released by the Department of Labor, it remains to be seen what impact those events will have going forward. The jobs report sent mixed signals. While 337,000 jobs were added to U.S. payrolls, unemployment inched up from 5.4 percent to 5.5 percent. The new jobs are encouraging, but not enough to keep up with new entrants into the workforce. Economists will be watching the November report closely.

So will CFOs, since 42 percent of them expect to increase the number of employees at their companies during the next six months. Another 16 percent say they expect a decrease in the number of workers, and 43 percent will keep the number constant. Those figures are down slightly from last quarter's survey, when 46 percent of finance executives said they expected an increase in hiring and only 11 percent were making cuts.

U.S. CFOs are even less confident about the global economy: just 33 percent are positive about its outlook in the next year. Their counterparts in Europe and Asia are also lowering their expectations: just 47 percent of European respondents hold positive views of the global economy, and only 41 percent of finance executives in Asia do. Confidence in Asia is slipping the most rapidly, with 62 percent of Asian CFOs reporting that they are either confident or very optimistic about the regional economy during the next year, down from 83 percent last quarter. Twenty-three percent now say they are concerned or very pessimistic about the Asian economy.

Here in the United States, corporate spending is still growing, though at more modest levels. Spending on salaries is growing fastest, with 69 percent of CFOs reporting expected increases during the next 12 months. Almost 50 percent say they'll spend more on benefits; 44 percent say they'll spend more on bonuses.

If the holiday shopping season can beat expectations, fuel costs drop, and hiring can repeat or better the October result, CFOs will likely ring in the New Year with much celebrating. If results in these areas disappoint, they may be too busy revising 2005 forecasts downward to drink much champagne.